01891cas a2200253 a 4500 AALejournalIMF005789 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451872521 1018-5941 BD-DhAAL BD-DhAAL De Nicolo, Gianni. Financial Intermediation, Competition, and Risk : A General Equilibrium Exposition / Gianni De Nicolo, Marcella Lucchetta. Washington, D.C. : International Monetary Fund, 2009. 1 online resource (29 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students We study a simple general equilibrium model in which investment in a risky technology is subject to moral hazard and banks can extract market power rents. We show that more bank competition results in lower economy-wide risk, lower bank capital ratios, more efficient production plans and Pareto-ranked real allocations. Perfect competition supports a second best allocation and optimal levels of bank risk and capitalization. These results are at variance with those obtained by a large literature that has studied a similar environment in partial equilibrium. Importantly, they are empirically relevant, and demonstrate the need of general equilibrium modeling to design financial policies aimed at attaining socially optimal levels of systemic risk in the economy. Mode of access: Internet Lucchetta, Marcella. IMF Working Papers; Working Paper ; No. 2009/105 Full text available on IMF http://elibrary.imf.org/view/journals/001/2009/105/001.2009.issue-105-en.xml IMF e-Library